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Barnes & Noble, Inc. (NYSE:BKS) is trending lower ahead of tomorrow morning's turn in the earnings confessional, down about 4.3% to hover at $16.79. Meanwhile, the equity's puts are unusually popular in the options pits today, with more than 5,800 contracts switching hands thus far. This is about eight times the equity's expected intraday put volume, and double the number of calls exchanged. However, it appears that some of these put players are utilizing front-month calls to place neutral-to-bullish bets on the book retailer.
Most active is the September 16 put, which has seen 4,224 contracts cross the tape at a volume-weighted average price (VWAP) of $0.61. Since today's volume exceeds current open interest levels -- and implied volatility has surged 8.9 percentage points -- it's likely that fresh positions have been created here. Although data from the International Securities Exchange (ISE) confirms the presence of some buy-to-open activity (or bets that the stock will topple south of $16 over the next five weeks), the majority of these out-of-the-money contracts traded at the bid price, signaling the presence of put selling, as well.
In other words, speculators are counting on BKS to remain atop the $16 level through front-month expiration on Sept. 20. In this scenario, the puts would expire worthless, and allow the speculators to pocket the initial premium received. However, should the shares fall below the strike price, the traders would be on the hook to purchase the stock at $16 per share, regardless of where BKS may be trading. Also of note, the delta for the put sits at negative 0.33, giving them a 1-in-3 chance of arriving in the money.
Widening the sentiment scope shows that BKS calls have been in vogue lately, despite the stock's August decline of around 6%. In fact, traders on the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 4,094 calls during the past four weeks, compared to just 2,647 puts, resulting in a 20-day call/put volume ratio of 1.55. Plus, the equity's front-month, gamma-weighted Schaeffer's put/call open interest (SOIR) ratio of 0.45 shows that near-the-money call open interest more than doubles put open interest in the September series of options. An unwinding of these calls -- particularly in the September series of options -- could end up serving as a headwind for the book guru in the short term.
As previously mentioned, Barnes & Noble, Inc. (NYSE:BKS) is on tap to report quarterly earnings prior to tomorrow's opening bell. The company doesn't have the most impressive earnings history, having topped consensus bottom-line estimates in just two of the past eight quarters. What's more, the shares have gone on to trade an average of 4.8% and 2.6% lower the day and week after posting results, respectively. For the fiscal first quarter, analysts are expecting a loss of 89 cents per share. This earnings report also comes less than two months after the early July resignation of CEO William Lynch, which followed the elimination of the Nook color e-reader and a noteworthy earnings loss in the bookseller's fiscal fourth quarter.